SAN DIMAS, Calif. — Despite having normal seasonal outflows of $1 billion, WesCorp members moved a record $3.3 billion into certificates during August.

This topped its previous record month of $2.6 billion earlier this year.

“Most members moved money out of their overnight accounts into short-term certificates ranging in maturities from a few weeks to 6 months. Most of these bookings occurred during the last two weeks of the month. Members became concerned about keeping money in their overnight accounts when the fed funds began trading below 5%,” said Dietmar Huesch, vice president of Treasury and Funding for WesCorp.

Fed funds averaged 4.91% between Aug. 10 and Aug. 31 after having averaged 5.25% for the past year.

“The reason the fed funds rate began trading lower was due to the massive amount of liquidity central banks had to pump into the system as liquidity in markets began to tighten up and in many cases disappear all together. This is on the back of the subprime investments being held by many institutions around the world,” said Huesch.

While this was viewed initially as a subprime only issue credit concerns quickly crept into all markets and lenders/investors significantly pulled back on lending. The mortgage back market saw virtually no bids in the securities in that market. The commercial paper market virtually disappeared particularly in the asset-backed cp market. This put a strain on bank lending lines causing the central banks including the Federal Reserve to pump massive amounts of cash into the overnight markets.

Currently the overnight markets are trading soft, but are holding above the 5% level, he said. The short-term LIBOR market is showing stress at the moment with 1-month LIBOR trading at 5.82%, a full 50 basis points above where it was trading a month ago. This is in spite of a likely fed funds cut at the Federal Reserve Open Market committee meeting on Sept.18th. “This is the widest spread I have

ever seen between Fed Funds and LIBOR when we were not in a tightening cycle,” said Huesch.

He expects either a 25 or 50 basis cut by the Fed on Sept. 18.

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